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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Current position analysis

PepsiCo, Inc., the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years:

  Current Year (in millions) Previous Year (in millions)
Cash and cash equivalents $ 6,297 $4,067
Short-term investments, at cost 322 358
Accounts and notes receivable, net 7,041 6,912
Inventories 3,581 3,827
Prepaid expenses and other current assets 1,479 2,277
Short-term obligations 4,815 6,205
Accounts payable 12,274 11,949

a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.

b. What Conclusions can you draw from these data about PepsiCo’s liquidity?

a.

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

To compute: Current and acid-test ratio for current year and previous year.

Given info: Items of current asset and current liabilities.

Explanation

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.  Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable...

b.

To determine

To provide: Conclusion towards company’s ratios

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